Finance (No. 2) Act 2017

PART 1 — Direct taxes

Income tax: employment and pensions

Taxable benefits: time limit for making good

1

• (1) Part 3 of ITEPA 2003 (employment income: earnings and benefits etc treated as earnings) is amended as follows.

• (2) In section 87 (cash equivalent of benefit of non-cash voucher)—

• (a) in subsection (2)(b), for “to the person incurring it” substitute “ , to the person incurring it, on or before 6 July following the relevant tax year ”, and

• (b) after subsection (2) insert—

(2A) If the voucher is a non-cash voucher other than a cheque voucher, the relevant tax year is— (a) the tax year in which the cost of provision is incurred, or (b) if later, the tax year in which the employee receives the voucher. (2B) If the voucher is a cheque voucher, the relevant tax year is the tax year in which the voucher is handed over in exchange for money, goods or services.

• (3) In section 88(3) (time at which cheque voucher treated as handed over), at the beginning insert “ For the purposes of subsection (2) and sections 87(2B) and 87A(6), ”.

• (4) In section 94(2) (cash equivalent of benefit of credit-token), in paragraph (b), for the words from “employee” to the end substitute

employee— (i) to the person incurring it, and (ii) on or before 6 July following the tax year which contains the occasion in question.

• (5) In section 105(2) (cash equivalent of benefit of living accommodation costing £75,000 or less), in paragraph (b), after “made good” insert “ , on or before 6 July following the tax year which contains the taxable period, ”.

• (6) In section 106(3) (cash equivalent of benefit of living accommodation costing over £75,000), in paragraph (a), for the words from “paid” to “exceeds” substitute

paid— (i) by the employee, (ii) in respect of the accommodation, (iii) to the person providing it, and (iv) on or before 6 July following the tax year which contains the taxable period, exceeds

.

• (7) In section 144 (deduction for payments for private use of car)—

• (a) in subsection (1)(b), for “in” substitute “ on or before 6 July following ”,

• (b) in subsection (2), after “paid” insert “ as mentioned in subsection (1)(b) ”, and

• (c) in subsection (3), after “paid” insert “ as mentioned in subsection (1)(b) ”.

• (8) In section 151(2) (when cash equivalent of benefit of car fuel is nil)—

• (a) in the words before paragraph (a) omit “in the tax year in question”,

• (b) in paragraph (a), at the beginning insert “ in the tax year in question, ”, and

• (c) in paragraph (b), at the end insert “ on or before 6 July following that tax year ”.

• (9) In section 152(2) (car fuel: proportionate reduction of cash equivalent)—

• (a) in the words before paragraph (a) omit “for any part of the tax year in question”,

• (b) in paragraph (a), at the beginning insert “ for any part of the tax year in question, ”,

• (c) in paragraph (b), at the beginning insert “ for any part of the tax year in question, ”, and

• (d) in paragraph (c)—

• (i) after “employee”, in the first place it occurs, insert

— (i) for any part of the tax year in question,

, and

• (ii) for “and the employee does make good that expense” substitute

, and (ii) the employee does make good that expense on or before 6 July following that tax year

.

• (10) In section 158 (reduction for payments for private use of van)—

• (a) in subsection (1)(b), for “in” substitute “ on or before 6 July following ”,

• (b) in subsection (2), after “paid” insert “ as mentioned in subsection (1)(b) ”, and

• (c) in subsection (3), after “paid” insert “ as mentioned in subsection (1)(b) ”.

• (11) In section 162(2) (when cash equivalent of benefit of van fuel is nil)—

• (a) in the words before paragraph (a) omit “in the tax year in question”,

• (b) in paragraph (a), at the beginning insert “ in the tax year in question, ”, and

• (c) in paragraph (b), at the end insert “ on or before 6 July following that tax year ”.

• (12) In section 163(3) (van fuel: proportionate reduction of cash equivalent)—

• (a) in the words before paragraph (a) omit “for any part of the tax year in question”,

• (b) in paragraph (a), at the beginning insert “ for any part of the tax year in question, ”,

• (c) in paragraph (b), at the beginning insert “ for any part of the tax year in question, ”, and

• (d) in paragraph (c)—

• (i) after “employee”, in the first place it occurs, insert

— (i) for any part of the tax year in question,

, and

• (ii) for “and the employee does make good that expense” substitute

, and (ii) the employee does make good that expense on or before 6 July following that tax year

.

• (13) In section 203(2) (cash equivalent of benefit treated as earnings), for “to the persons providing the benefit” substitute “ , to the persons providing the benefit, on or before 6 July following the tax year in which it is provided ”.

• (14) The amendments made by this section have effect for the purpose of calculating income tax charged for the tax year 2017-18 or any subsequent tax year.

Taxable benefits: ultra-low emission vehicles

2

• (1) ITEPA 2003 is amended as follows.

• (2) In section 139 (car with a CO₂ emissions figure: the appropriate percentage), for subsections (1) to (6) substitute—

(1) The appropriate percentage for a year for a car with a CO₂ emissions figure of less than 75 is determined in accordance with the following table.

Car	Appropriate percentage
Car with CO₂ emissions figure of 0	2%
Car with CO₂ emissions figure of 1 - 50
Car with electric range figure of 130 or more	2%
Car with electric range figure of 70 - 129	5%
Car with electric range figure of 40 - 69	8%
Car with electric range figure of 30 - 39	12%
Car with electric range figure of less than 30	14%
Car with CO₂ emissions figure of 51 - 54	15%
Car with CO₂ emissions figure of 55 - 59	16%
Car with CO₂ emissions figure of 60 - 64	17%
Car with CO₂ emissions figure of 65 - 69	18%
Car with CO₂ emissions figure of 70 - 74	19%

(2) For the purposes of subsection (1) and the table, if a CO₂ emissions figure or an electric range figure is not a whole number, round it down to the nearest whole number. (3) The appropriate percentage for a year for a car with a CO₂ emissions figure of 75 or more is whichever is the lesser of— (a) 20% plus one percentage point for each 5 grams per kilometre driven by which the CO₂ emissions figure exceeds 75, and (b) 37%. (4) For the purposes of subsection (3), if a CO₂ emissions figure is not a multiple of 5, round it down to the nearest multiple of 5. (5) In this section, an “electric range figure” is the number of miles which is the equivalent of the number of kilometres specified in an EC certificate of conformity, an EC type-approval certificate or a UK approval certificate on the basis of which a car is registered, as being the maximum distance for which the car can be driven in electric mode without recharging the battery.

• (3) In section 140 (car without a CO₂ emissions figure: the appropriate percentage)—

• (a) in subsection (2), in the table —

• (i) for “23%” substitute “ 24% ”, and

• (ii) for “34%” substitute “ 35% ”;

• (b) in subsection (3)(a), for “16%” substitute “ 2% ”.

• (4) In section 142(2) (car first registered before 1 January 1998: the appropriate percentage), in the table—

• (a) for “23%” substitute “ 24% ”, and

• (b) for “34%” substitute “ 35% ”.

• (5) Omit subsection 170(3).

• (6) The amendments made by this section have effect for the tax year 2020-21 and subsequent tax years.

Pensions advice

3

• (1) In Chapter 9 of Part 4 of ITEPA 2003, after section 308B insert—

(308C) (1) No liability to income tax arises in respect of— (a) the provision of relevant pensions advice to an employee or former or prospective employee, or (b) the payment or reimbursement of costs incurred, by or in respect of an employee or former or prospective employee, in obtaining relevant pensions advice, if Condition A or B is met. (2) But subsection (1) does not apply in relation to a person in a tax year so far as the value of the exemption in the person's case in that year exceeds £500. (3) The “value of the exemption”, in relation to a person and a tax year, is the amount exempted by subsection (1) from income tax in the person's case in that year, disregarding subsection (2) for this purpose. (4) If in a tax year there is in relation to an individual more than one person who is an employer or former employer, subsections (1) to (3) apply in relation to the individual as employee or former or prospective employee of any one of those persons separately from their application in relation to the individual as employee or former or prospective employee of any other of those persons. (5) “Relevant pensions advice”, in relation to a person, means information, or advice, in connection with— (a) the person's pension arrangements, or (b) the use of the person's pension funds. (6) Condition A is that the relevant pensions advice, or payment or reimbursement, is provided under a scheme that is open— (a) to the employer's employees generally, or (b) generally to the employer's employees at a particular location. (7) Condition B is that the relevant pensions advice, or payment or reimbursement, is provided under a scheme that is open generally to the employer's employees, or generally to those of the employer's employees at a particular location, who— (a) have reached the minimum qualifying age, or (b) meet the ill-health condition. (8) The “minimum qualifying age”, in relation to an employee, means the employee's relevant pension age less 5 years. (9) “Relevant pension age”, in relation to an employee, means— (a) where paragraph 22 or 23 of Schedule 36 to FA 2004 applies in relation to the employee and a registered pension scheme of which the employee is a member, the employee's protected pension age (see paragraph 22(8) and 23(8) of Schedule 36 to FA 2004), or (b) in any other case, the employee's normal minimum pension age, as defined by section 279(1) of FA 2004. (10) The “ill-health condition” is met by an employee if the employer is satisfied, on the basis of evidence provided by a registered medical practitioner, that the employee is (and will continue to be) incapable of carrying on his or her occupation because of physical or mental impairment.

• (2) In section 228 of ITEPA 2003 (effect of exemptions on liability under provisions outside Part 2 of ITEPA 2003), in subsection (2), after paragraph (da) insert—

(db) section 308C (provision of pensions advice),

.

• (3) Regulation 5 of the Income Tax (Exemption of Minor Benefits) Regulations 2002 (S.I. 2002/205) (exemption in respect of the provision of pensions advice) is revoked.

• (4) In regulation 2 of the Income Tax (Exemption of Minor Benefits) (Amendment) Regulations 2004 (S.I. 2004/3087) omit the inserted regulation 5.

• (5) The amendments made by this section have effect for the tax year 2017-18 and subsequent tax years.

Legal expenses etc

4

• (1) ITEPA 2003 is amended as follows.

• (2) In section 346 (deduction for employee liabilities)—

• (a) in the heading, at the end insert “ and expenses ”,

• (b) after paragraph B (in subsection (1)) insert—

(BA) Payment of any costs or expenses not falling within paragraph B which are incurred in connection with the employee giving evidence about matters related to the employment in, or for the purposes of— (a) a proceeding or other process (whether or not involving the employee), or (b) an investigation (whether or not likely to lead to any proceeding or other process involving the employee). (BB) Payment of any costs or expenses not falling within paragraph B or BA which are incurred in connection with a proceeding or other process, or an investigation, in which— (a) acts of the employee related to the employment, or (b) any other matters related to the employment, are being or are likely to be considered.

,

• (c) in paragraph C(b) (in subsection (1)), after “B” insert “ , BA or BB ”,

• (d) in subsection (2) for “or B” substitute “ B, BA or BB ”,

• (e) in subsection (2A), for “paragraph A, B or C” substitute “ any of paragraphs A to C ”, and

• (f) after subsection (3) insert—

(4) In this section and section 349— (a) “acts” includes failures to act and acts are “related to the employment” if the employee was acting— (i) in the employee's capacity as holder of the employment, or (ii) in any other capacity in which the employee was acting in the performance of the duties of the employment, (b) “giving evidence” includes making a formal or informal statement or answering questions, (c) “proceeding or other process” includes any civil, criminal or arbitration proceedings, any disciplinary or regulatory proceedings of any kind and any process operated for resolving disputes or adjudicating on complaints, and (d) references to a proceeding or other process or an investigation include a reference to a proceeding or other process or an investigation that is likely to take place.

• (3) In section 349 (section 346: meaning of “qualifying insurance contract”), in subsection (2)—

• (a) after paragraph (c) insert—

(ca) the payment of costs or expenses incurred in connection with an employee giving evidence about matters related to the employee's employment in, or for the purposes of— (i) a proceeding or other process (whether or not involving the employee), or (ii) an investigation (whether or not likely to lead to any proceeding or other process involving the employee), (cb) the payment of any costs or expenses incurred in connection with a proceeding or other process, or an investigation, in which— (i) acts of an employee related to the employment, or (ii) any other matters related to the employment of an employee, are being or are likely to be considered,

, and

• (b) in subsection (2)(d), after “(c)” insert “ , (ca) or (cb) ”.

• (4) In section 409 (payments and benefits on termination of employment etc: exception for payments and benefits in respect of employee liabilities and indemnity insurance)—

• (a) in the heading, for “employee liabilities” substitute “ certain legal expenses etc ”, and

• (b) in subsection (3), at the end insert “ or by the employer or former employer on behalf of the individual ”.

• (5) In section 410 (payments and benefits on termination of employment etc: exception for certain payments and benefits received by personal representatives of deceased individual)—

• (a) in the heading for “employee liabilities” substitute “ certain legal expenses etc ”, and

• (b) in subsection (3), at the end insert “ or by the former employer on behalf of the individual's personal representatives ”.

• (6) In section 558 (deductions for liabilities of former employees: meaning of “deductible payment”)—

• (a) after paragraph B (in subsection (1)) insert—

(BA) Payment of any costs or expenses not falling within paragraph B which are incurred in connection with the former employee giving evidence about matters related to the former employment in, or for the purposes of— (a) a proceeding or other process (whether or not involving the former employee), or (b) an investigation (whether or not likely to lead to any proceeding or other process involving the former employee). (BB) Payment of any costs or expenses not falling within paragraph B or BA which are incurred in connection with a proceeding or other process, or an investigation, in which— (a) acts of the former employee related to the former employment, or (b) any other matters related to the former employment, are being or are likely to be considered.

, and

• (b) in paragraph C(b) (in subsection (1)), after “B” insert “ , BA or BB ”,

• (c) in subsection (2), for “or B” substitute “ B, BA or BB ”,

• (d) after subsection (3) insert—

(4) In this section and section 560— (a) “acts” includes failures to act and acts are “related to the former employment” if the former employee was acting— (i) in the employee's capacity as holder of the former employment, or (ii) in any other capacity in which the former employee was acting in the performance of the duties of that employment, (b) “giving evidence” includes making a formal or informal statement or answering questions, (c) “proceeding or other process” includes any civil, criminal or arbitration proceedings, any disciplinary or regulatory proceedings of any kind and any process operated for resolving disputes or adjudicating on complaints, and (d) references to a proceeding or other process or an investigation include a reference to a proceeding or other process or an investigation that is likely to take place.

• (7) In section 560 (section 558: meaning of “qualifying insurance contract”), in subsection (2)—

• (a) after paragraph (c) insert—

(ca) the payment of costs or expenses incurred in connection with a former employee giving evidence about matters related to the former employment in, or for the purposes of— (i) a proceeding or other process (whether or not involving the former employee), or (ii) an investigation (whether or not likely to lead to any proceeding or other process involving the former employee). (cb) the payment of any costs or expenses incurred in connection with a proceeding or other process, or an investigation, in which— (i) acts of a former employee related to the employment, or (ii) any other matters related to the former employment of a former employee, are being or are likely to be considered,

, and

• (b) in paragraph (d), after “(c)” insert “ , (ca) or (cb) ”.

• (8) The amendments made by this section have effect in relation to the tax year 2017-18 and subsequent tax years.

Termination payments etc: amounts chargeable on employment income

5

• (1) ITEPA 2003 is amended in accordance with subsections (2) to (9).

• (2) In section 7(5) (list of provisions under which amounts are treated as earnings), before the “or” at the end of paragraph (c) insert—

(ca) section 402B (termination payments, and other benefits, that cannot benefit from section 403 threshold),

.

• (3) Before section 403 (charge on payments and benefits in excess of £30,000 threshold) insert—

(402A) (1) In this Chapter “termination award” means a payment or other benefit to which this Chapter applies because of section 401(1)(a). (2) Section 402B (termination awards not benefiting from threshold treated as earnings) applies to termination awards to the extent determined under section 402C. (3) Section 403 (charge on payment or benefit where threshold applies) applies to termination awards so far as they are not ones to which section 402B applies. (4) Section 403 also applies to payments and other benefits to which this Chapter applies because of section 401(1)(b) or (c) (change in duties or earnings). (402B) (1) The amount of a termination award to which this section applies is treated as an amount of earnings of the employee, or former employee, from the employment. (2) See also section 7(3)(b) and (5)(ca) (which cause amounts treated as earnings under this section to be included in general earnings). (3) Section 403(3) (when benefits are received) does not apply in relation to payments or other benefits to which this section applies. (402C) (1) This section has effect for the purpose of identifying the extent to which section 402B applies to termination awards in respect of the termination of the employment of the employee. (2) In this section “relevant termination award” means a termination award that is neither— (a) a redundancy payment, nor (b) so much of an approved contractual payment as is equal to or less than the amount which would have been due if a redundancy payment had been payable. (3) If the post-employment notice pay (see section 402D) in respect of the termination is greater than, or equal to, the total amount of the relevant termination awards in respect of the termination, section 402B applies to all of those relevant termination awards. (4) If the post-employment notice pay in respect of the termination is less than the total amount of the relevant termination awards in respect of the termination but is not nil— (a) section 402B applies to a part of those relevant termination awards, and (b) the amount of that part is equal to the post-employment notice pay. (5) Section 309(4) to (6) (meaning of “redundancy payment” and “approved contractual payment” etc) apply for the purposes of subsection (2) as they apply for the purposes of section 309. (402D) (1) “The post-employment notice pay” in respect of a termination is (subject to subsection (11)) given by— $$( BP × D P ) − T$where—BP, D and P are given by subsections (3) to (7), andT is the total of the amounts of any payment or benefit received in connection with the termination which—would fall within section 401(1)(a) but for section 401(3),is taxable as earnings under Chapter 1 of Part 3,is not pay in respect of holiday entitlement for a period before the employment ends, andis not a bonus payable for termination of the employment.$ (2) If the amount given by the formula in subsection (1) is a negative amount, the post-employment notice pay is nil. (3) Subject to subsections (5) and (6)— - BP is the employee's basic pay (see subsection (7)) from the employment in respect of the last pay period of the employee to end before the trigger date, - P is the number of days in that pay period, and - D is the number of days in the post-employment notice period. (4) See section 402E for the meaning of “trigger date” and “post-employment notice period”. (5) If there is no pay period of the employee which ends before the trigger date then— - BP is the employee's basic pay from the employment in respect of the period starting with the first day of the employment and ending with the trigger date, - P is the number of days in that period, and - D is the number of days in the post-employment notice period. (6) If the last pay period of the employee to end before the trigger date is a month, the minimum notice (see section 402E) is given by contractual terms and is expressed to be a whole number of months, and the post-employment notice period is equal in length to the minimum notice or is otherwise a whole number of months, then— - BP is the employee's basic pay from the employment in respect of the last pay period of the employee to end before the trigger date, - P is 1, and - D is the length of the post-employment notice period expressed in months. (7) In this section “basic pay” means— (a) employment income of the employee from the employment but disregarding— (i) any amount received by way of overtime, bonus, commission, gratuity or allowance, (ii) any amount received in connection with the termination of the employment, (iii) any amount treated as earnings under Chapters 2 to 10 of Part 3 (the benefits code) or which would be so treated apart from section 64, (iv) any amount which is treated as earnings under Chapter 12 of Part 3 (amounts treated as earnings), (v) any amount which counts as employment income by virtue of Part 7 (income relating to securities and securities options), and (vi) any employment-related securities that constitute earnings under Chapter 1 of Part 3 (earnings), and (b) any amount which the employee has given up the right to receive but which would have fallen within paragraph (a) had the employee not done so. (8) In subsection (7) “employment-related securities” has the same meaning as it has in Chapter 1 of Part 7 (see section 421B). (9) The Treasury may by regulations amend this section for the purpose of altering the meaning of “basic pay”. (10) A statutory instrument containing regulations under subsection (9) may not be made unless a draft of it has been laid before, and approved by a resolution of, the House of Commons. (11) Where the purpose, or one of the purposes, of any arrangements is the avoidance of tax by causing the post-employment notice pay calculated under subsection (1) to be less than it would otherwise be, the post-employment notice pay is to be treated as the amount which the post-employment notice pay would have been but for the arrangements. (12) In subsection (11) “arrangements” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions. (402E) (1) Subsections (2) and (4) to (6) have effect for the purposes of section 402D (and subsection (4) has effect also for the purposes of this section). (2) The “trigger date” is— (a) if the termination is not a notice case, the last day of the employment, and (b) if the termination is a notice case, the day the notice is given. (3) For the purposes of this section, the termination is a “notice case” if the employer or employee gives notice to the other to terminate the employment, and here it does not matter— (a) whether the notice is more or less than, or the same as, the minimum notice, or (b) if the employment ends before the notice expires. (4) The “minimum notice” is the minimum notice required to be given by the employer to terminate the employee's employment by notice in accordance with the law and contractual terms effective— (a) where the termination is not a notice case— (i) immediately before the employment ends, or (ii) where the employment ends by agreement entered into after the start of the employment, immediately before the agreement is entered into, and (b) where the termination is a notice case, immediately before the notice is given. (5) The “post-employment notice period” is the period— (a) beginning at the end of the last day of the employment, and (b) ending with the earliest lawful termination date. (But see subsection (8) for provision about limited-term contracts.) (6) If the earliest lawful termination date is, or precedes, the last day of the employment, the number of days in the post-employment notice period is nil. (7) “The earliest lawful termination date” is the last day of the period which— (a) is equal in length to the minimum notice, and (b) begins at the end of the trigger date. (8) In the case of a contract of employment which is a limited-term contract and which does not include provision for termination by notice by the employer, the post-employment notice period is the period— (a) beginning at the end of the last day of the employment, and (b) ending with the day of the occurrence of the limiting event. (9) If, in a case to which subsection (8) applies, on the last day of the employment the day of the occurrence of the limiting event is not ascertained or ascertainable (because, for example, the limiting event is the performance of a task), then subsection (8) has effect as if for paragraph (b) there were substituted— (b) ending with the day on which notice would have expired if the employer had, on the last day of the employment, given to the employee the minimum notice required to terminate the contract under section 86 of the Employment Rights Act 1996 (assuming that that section applies to the employment). (10) In this section “limited-term contract” and “limiting event” have the same meaning as in the Employment Rights Act 1996 (see section 235(2A) and (2B)).

• (4) In section 403 (charges on payments and benefits which can benefit from threshold)—

• (a) in subsection (1), for “Chapter” substitute “ section ”,

• (b) in subsection (3), after “Chapter” insert “ (but see section 402B(3)) ”,

• (c) in subsection (4), for the words from “when” to “exceeds” substitute

when aggregated with— (a) other payments or benefits in respect of the employee or former employee that are payments or benefits to which this section applies, and (b) other payments or benefits in respect of the employee or former employee that are payments or benefits— (i) received in the tax year 2017-18 or an earlier tax year, and (ii) to which this Chapter applied in the tax year of receipt, it exceeds

,

• (d) in subsection (5)(a), for “Chapter” substitute “ section ”,

• (e) in subsection (6), after “employment income” insert “ or, as the case may be, in relation to whom section 402B(1) provides for an amount to be treated as an amount of earnings ”, and

• (f) in the heading, at the end insert “ where threshold applies ”.

• (5) In section 404 (how the threshold applies)—

• (a) in subsection (3)(b) (meaning of “termination or change date”), for “this Chapter” substitute “ section 403 ”, and

• (b) after subsection (5) insert—

(6) In subsection (3)(b), the reference to a payment or other benefit to which section 403 applies includes a reference to a payment or other benefit— (a) received in the tax year 2017-18 or an earlier tax year, and (b) to which this Chapter applied in the tax year of receipt.

• (6) After section 404A insert—

(404B) (1) The Treasury may by regulations amend the listed provisions by substituting, for the amount for the time being mentioned in those provisions, a different amount. (2) The listed provisions are— - subsections (1), (4) and (5) of section 403, and - subsections (1), (4) and (5) of section 404 and its heading. (3) Regulations under this section may include transitional provision. (4) A statutory instrument containing regulations under this section which reduce the mentioned amount may not be made unless a draft of it has been laid before, and approved by a resolution of, the House of Commons.

• (7) In section 406 (exception in cases of death, injury or disability)—

• (a) the existing text becomes subsection (1), and

• (b) after that subsection insert—

(2) Although “injury” in subsection (1) includes psychiatric injury, it does not include injured feelings.

• (8) In section 414(2) (proportionate reduction for foreign service in certain cases), for “otherwise count as employment income under this Chapter” substitute

otherwise— (a) be treated as earnings by section 402B(1), or (b) count as employment income as a result of section 403

.

• (9) In section 717(4) (regulations etc not subject to negative procedure), before “or section 681F(3)” insert “ , section 402D(10) (meaning of basic pay for purpose of calculating charge on termination award), section 404B(4) (reduction of tax-free threshold for employment-termination etc payments) ”.

• (10) The amendments made by this section have effect for the tax year 2018-19 and subsequent tax years.

PAYE settlement agreements

6

• (1) In Chapter 5 of Part 11 of ITEPA 2003 (PAYE settlement agreements), in sections 703(a) and 704(1)(a), for “an officer of Revenue and Customs” substitute “ Her Majesty's Revenue and Customs ”.

• (2) The amendment made by this section has effect in relation to the tax year 2018-19 and subsequent tax years.

Money purchase annual allowance

7

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Income tax: investments

Dividend nil rate for tax year 2018-19 etc

8

• (1) In section 13A of ITA 2007 (income charged at the dividend nil rate), for “£5000”, in each place, substitute “ £2000 ”.

• (2) The amendments made by this section have effect for the tax year 2018-19 and subsequent tax years.

Life insurance policies: recalculating gains on part surrenders etc

9

• (1) ITTOIA 2005 is amended as follows.

• (2) After section 507 (method for making periodic calculations in part surrender or assignment cases) insert—

(507A) (1) An interested person may apply to an officer of Revenue and Customs for a review of a calculation under section 507 on the ground that the gain arising from it is wholly disproportionate. (2) For the purposes of this section an interested person in relation to a calculation under section 507 is a person who would be liable for all or any part of the amount of tax that would be chargeable under this Chapter if the gain were not recalculated. (3) Applications under subsection (1) must be— (a) made in writing, and (b) received by an officer of Revenue and Customs within— (i) the four tax years following the tax year in which the gain arose, or (ii) such longer period as the officer may agree. (4) In considering whether the gain is wholly disproportionate, the officer may take into account (as well as the amount of the gain) any factor which the officer considers appropriate including, so far as the officer considers it appropriate to do so— (a) the economic gain on the rights surrendered or assigned, (b) the amount of the premiums paid under the policy or contract, (c) the amount of tax that would be chargeable under this Chapter if the gain were not recalculated. (5) If, following an application under subsection (1), an officer considers that the gain arising from the calculation under section 507 is wholly disproportionate, the officer must recalculate the gain on a just and reasonable basis. (6) Following a recalculation under subsection (5), references in this Chapter (but excluding this section) to a calculation under section 507 are to be regarded as references to a recalculation under this section. (7) Following a recalculation under subsection (5), an officer of Revenue and Customs must notify the interested person of the result of the recalculation. (8) If two or more persons are interested persons in relation to a calculation under section 507— (a) an application under subsection (1) may be made only by all the interested persons jointly, and (b) subsection (7) applies as if the reference to the interested person were a reference to each of the interested persons. (9) Following a recalculation under subsection (5), all necessary adjustments and repayments of income tax are to be made. (10) No recalculation is to be made under this section if the gain mentioned in subsection (1) arises as a result of one or more transactions which form part of arrangements, the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person. (11) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and - “tax advantage” has the meaning given by section 1139 of CTA 2010.

• (3) After section 512 (available premium left for relevant transaction in certain part surrender or assignment cases) insert—

(512A) (1) An interested person may apply to an officer of Revenue and Customs for a review of a calculation under section 511 on the ground that the gain arising from it is wholly disproportionate. (2) For the purposes of this section an interested person in relation to a calculation under section 511 is a person who would be liable for all or any part of the amount of tax that would be chargeable under this Chapter— (a) if the gain were not recalculated, or (b) if all rights under the policy or contract had been surrendered immediately after the surrender or assignment of rights which gave rise to the calculation. (3) Applications under subsection (1) must be— (a) made in writing, and (b) received by an officer of Revenue and Customs within— (i) the four tax years following the tax year in which the gain arose, or (ii) such longer period as the officer may agree. (4) In considering whether the gain is wholly disproportionate, the officer may take into account (as well as the amount of the gain) any factor which the officer considers appropriate including, so far as the officer considers it appropriate to do so— (a) the economic gain on the rights surrendered or assigned, (b) the amount of the premiums paid under the policy or contract, (c) the amount of tax that would be chargeable under this Chapter if the gain were not recalculated. (5) If, following an application under subsection (1), an officer considers that the gain arising from the calculation under section 511 is wholly disproportionate, the officer must recalculate the gain on a just and reasonable basis. (6) Following a recalculation under subsection (5), references in this Chapter (but excluding this section) to a calculation under section 511 are to be regarded as references to a recalculation under this section. (7) Following a recalculation under subsection (5), an officer of Revenue and Customs must notify the interested person of the result of the recalculation. (8) If two or more persons are interested persons in relation to a calculation under section 511— (a) an application under subsection (1) may be made only by all the interested persons jointly, and (b) subsection (7) applies as if the reference to the interested person were a reference to each of the interested persons. (9) Following a recalculation under subsection (5), all necessary adjustments and repayments of income tax are to be made. (10) No recalculation is to be made under this section if the gain mentioned in subsection (1) arises as a result of one or more transactions which form part of arrangements, the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person. (11) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and - “tax advantage” has the meaning given by section 1139 of CTA 2010.

• (4) In section 538 (recovery of tax from trustees), after subsection (6) insert—

(7) Subsection (8) applies where— (a) an individual has recovered an amount from trustees under this section, and (b) subsequently the individual's liability to tax under this Chapter has been reduced (or removed) as a result of a recalculation under section 507A or 512A. (8) The individual must repay to the trustees the amount (if any) by which the recovered amount exceeds the individual's revised entitlement. (9) In subsection (8) the individual's revised entitlement is the amount to which the individual is entitled under this section calculated by reference to the individual's liability to tax under this Chapter as reduced (or removed) as a result of the recalculation under section 507A or 512A.

• (5) The amendments made by subsection (4) have effect in relation to amounts recovered before, as well as after, the day on which this Act is passed.

Personal portfolio bonds

10

In section 520 of ITTOIA 2005 (property categories), after subsection (4) insert—

(5) The Treasury may by regulations— (a) amend the table in subsection (2) by adding, removing or amending a category of property; (b) add, remove or amend a definition relating to any category of property in that table; and (c) make consequential amendments. (6) A statutory instrument containing regulations under this section which have the effect of removing a category of property from the table in subsection (2)— (a) must be laid before the House of Commons; and (b) ceases to have effect at the end of the period of 28 days beginning with the day on which it was made, unless it is approved during that period by a resolution of the House of Commons. (7) In reckoning the period of 28 days, no account is to be taken of any time during which Parliament is dissolved or prorogued, or during which the House of Commons is adjourned for more than four days.

EIS and SEIS: the no pre-arranged exits requirement

11

• (1) ITA 2007 is amended as follows.

• (2) In section 177 (EIS: the no pre-arranged exits requirement), for subsection (2) substitute—

(2) The arrangements referred to in subsection (1)(a) do not include— (a) any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in section 247(1), or (b) any arrangements with a view to any shares in the issuing company being exchanged for, or converted into, shares in that company of a different class.

• (3) In section 257CD (SEIS: the no pre-arranged exits requirement), for subsection (2) substitute—

(2) The arrangements referred to in subsection (1)(a) do not include— (a) any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in section 257HB(1), or (b) any arrangements with a view to any shares in the issuing company being exchanged for, or converted into, shares in that company of a different class.

• (4) The amendments made by this section have effect in relation to shares issued on or after 5 December 2016.

VCTs: follow-on funding

12

• (1) ITA 2007 is amended as follows.

• (2) In section 326 (restructuring to which sections 326A and 327 apply)—

• (a) in the heading to section 326, for “section 327 applies” substitute “ sections 326A, 327 and 327A apply ”;

• (b) in subsection (1), for “Sections 326A and 327 apply” substitute “ Sections 326A, 327 and 327A apply ”.

• (3) After section 327 insert—

(327A) (1) Subsections (2) and (3) apply where— (a) this section applies (see section 326(1)), (b) the acquisition by the new company of all the old shares, which is provided for by the arrangements mentioned in section 326(1), takes place, and (c) the acquisition falls within section 326(2). (2) If, after the acquisition, another company makes an investment in the new company, section 280C (the permitted maximum age condition) has effect in relation to that investment as if— (a) in subsection (4)(a) the reference to a relevant investment having been made in the relevant company before the end of the initial investing period included a reference to a relevant investment having been made in the old company before the acquisition and before the end of the initial investing period, and (b) in subsection (6)(a) the reference to relevant investments made in the relevant company included a reference to relevant investments made in the old company before the acquisition. (3) In relation to any relevant holding issued by the new company after the acquisition, section 294A (the permitted company age requirement) has effect as if— (a) in subsection (3)(a) the reference to a relevant investment having been made in the relevant company before the end of the initial investing period included a reference to a relevant investment having been made in the old company before the acquisition and before the end of the initial investing period, and (b) in subsection (5)(a) the reference to relevant investments made in the relevant company included a reference to relevant investments made in the old company before the acquisition. (4) In subsection (3) “relevant holding” has the same meaning as in Chapter 4.

• (4) The amendments made by this section have effect—

• (a) for the purposes of section 280C of ITA 2007, in relation to investments made on or after 6 April 2017;

• (b) for the purposes of section 294A of ITA 2007, in relation to relevant holdings issued on or after 6 April 2017.

VCTs: exchange of non-qualifying shares and securities

13

• (1) Section 330 of ITA 2007 (power to facilitate company reorganisations etc involving exchange of shares) is amended as follows.

• (2) After subsection (1) insert—

(1A) The Treasury may by regulations make provision for the purposes of this Part for cases where— (a) a holding of shares or securities that does not meet the requirements of Chapter 4 is exchanged for other shares or securities not meeting those requirements, and (b) the exchange is made for genuine commercial reasons and does not form part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

• (3) In subsection (2), for “subsection (1)” substitute “ subsections (1) and (1A) ”.

• (4) In subsection (3), for “The regulations” substitute “ Regulations under subsection (1) ”.

• (5) After subsection (3) insert—

(3A) Regulations under subsection (1A) may, among other things, make provision— (a) for the new shares or securities to be treated in any respect in the same way as the original shares and securities for any period; (b) as to when the new shares or securities are to be regarded as having been acquired; (c) as to the valuation of the original or the new shares or securities.

• (6) In subsection (4), for “The regulations” substitute “ Regulations under this section ”.

• (7) In subsection (6). in paragraph (c), at the beginning insert “ in the case of regulations under subsection (1) ”.

Social investment tax relief

14

Schedule 1 makes provision about income tax relief for social investments.

Business investment relief

15

• (1) Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.

• (2) In section 809VC (qualifying investments), in subsection (1)(a), after “issued to” insert “ or acquired by ”.

• (3) In section 809VD (condition relating to qualifying investments)—

• (a) in subsection (1), omit the “or” at the end of paragraph (b) and after that paragraph insert—

(ba) an eligible hybrid company, or

;

• (b) in subsection (2)(b), for “2” substitute “ 5 ”;

• (c) in subsection (3)(c), for “2” substitute “ 5 ”;

• (d) after subsection (3) insert—

(3A) A company is an “eligible hybrid company” if— (a) it is a private limited company, (b) it is not an eligible trading company or an eligible stakeholder company, (c) it carries on one or more commercial trades or is preparing to do so within the next 5 years, (d) it holds one or more investments in eligible trading companies or is preparing to do so within the next 5 years, and (e) carrying on commercial trades and making investments in eligible trading companies are all or substantially all of what it does (or of what it is reasonably expected to do once it begins operating).

;

• (e) in subsection (4), for “reference in subsection (3)” substitute “ references in subsections (3) and (3A) ”;

• (f) in subsection (5)(a), for “2” substitute “ 5 ”.

• (4) In section 809VE (commercial trades), after subsection (5) insert—

(6) A company which is a partner in a partnership is not to be regarded as carrying on a trade carried on by the partnership.

• (5) In section 809VH (meaning of “potentially chargeable event”)—

• (a) in subsection (1)(a), after “eligible stakeholder company” insert “ nor an eligible hybrid company ”;

• (b) in subsection (1)(d), for “2-year” substitute “ 5-year ”;

• (c) in subsection (2), for paragraph (b) substitute—

(b) the value is received from any person in circumstances that are directly or indirectly attributable to the investment, and

;

• (d) omit subsection (4);

• (e) in subsection (5)—

• (i) for “2-year” substitute “ 5-year ”;

• (ii) in paragraph (a), for “2” substitute “ 5 ”;

• (f) in subsection (6), omit the “or” at the end of paragraph (b) and after that paragraph insert—

(ba) it is an eligible hybrid company but is not trading and— (i) it holds no investments in eligible trading companies, or (ii) none of the eligible trading companies in which it holds investments is trading, or

;

• (g) in subsection (10)(b), after “eligible stakeholder company” insert “ or an eligible hybrid company ”.

• (6) In section 809VJ (grace period), after subsection (2) insert—

(2A) But subsection (2B) applies instead of subsections (1) and (2) where the potentially chargeable event is a breach of the 5-year start-up rule by virtue of section 809VH(5)(b). (2B) The grace period allowed for the steps mentioned in section 809VI(2)(a) and (2)(b) is the period of 2 years beginning with the day on which a relevant person first became aware or ought reasonably to have become aware of the potentially chargeable event referred to in subsection (2A).

• (7) In section 809VN (order of disposals etc), in subsections (1)(c) and (5)(a) and (b), after “eligible stakeholder company” insert “ or eligible hybrid company ”.

• (8) The amendments made by this section have effect where the relevant event as defined in section 809VA of ITA 2007 occurs on or after 6 April 2017.

Income tax: trading and property businesses

Calculation of profits of trades and property businesses

16

Schedule 2 contains provision about the calculation of the profits of a trade, profession or vocation or a property business, in particular the calculation of profits on the cash basis.

Trading and property allowances

17

Schedule 3 contains provision about a trading allowance and a property allowance giving relief from income tax.

Corporation tax

Carried-forward losses

18

• (1) Schedule 4 makes provision about corporation tax relief for losses and other amounts that are carried forward.

• (2) The Commissioners for Her Majesty's Revenue and Customs may by regulations made by statutory instrument make provision consequential on any provision made by Schedule 4.

• (3) Regulations under subsection (2)—

• (a) may make provision amending or modifying any provision of the Taxes Acts (including any provision inserted by Schedule 4),

• (b) may make incidental, supplemental, transitional, transitory or saving provision, and

• (c) may make different provision for different purposes.

• (4) A statutory instrument containing regulations under subsection (2) is subject to annulment in pursuance of a resolution of the House of Commons.

• (5) In this section “the Taxes Acts” has the same meaning as in the Taxes Management Act 1970 (see section 118(1) of that Act).

Losses: counteraction of avoidance arrangements

19

• (1) Any loss-related tax advantage that would (in the absence of this section) arise from relevant tax arrangements is to be counteracted by the making of such adjustments as are just and reasonable.

• (2) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of—

• (a) an assessment,

• (b) the modification of an assessment,

• (c) amendment or disallowance of a claim,

or otherwise.

• (3) For the purposes of this section arrangements are “relevant tax arrangements” if conditions A and B are met.

• (4) Condition A is that the purpose, or one of the main purposes, of the arrangements is to obtain a loss-related tax advantage.

• (5) Condition B is that it is reasonable to regard the arrangements as circumventing the intended limits of relief under the relevant provisions or otherwise exploiting shortcomings in the relevant provisions.

• (6) In determining whether or not condition B is met all the relevant circumstances are to be taken into account, including whether the arrangements include any steps that—

• (a) are contrived or abnormal, or

• (b) lack a genuine commercial purpose.

• (7) In this section “loss-related tax advantage” means a tax advantage as a result of a deduction (or increased deduction) under a provision mentioned in subsection (8).

• (8) The provisions are—

• (za) section 2A(1) of TCGA 1992 (allowable capital losses);

• (a) sections 457, 459, 461, 462, 463B, 463G and 463H of CTA 2009 (non-trading deficits from loan relationships);

• (b) section 753 of CTA 2009 (non-trading losses on intangible fixed assets);

• (c) section 1219 of CTA 2009 (management expenses etc);

• (d) sections 37, 45, 45A, 45B and 45F of CTA 2010 (deductions in respect of trade losses);

• (e) section 62(3) of CTA 2010 (losses of a UK property business);

• (f) Part 5 of CTA 2010 (group relief);

• (g) Part 5A of CTA 2010 (group relief for carried-forward losses);

• (h) sections 303B, 303C and 303D of CTA 2010 (non-decommissioning losses of ring-fence trades);

• (i) sections 124A, 124B and 124C of FA 2012 (carried-forward BLAGAB trade losses).

• (9) In this section—

• “arrangements” includes any agreement, understanding, scheme transaction or series of transactions (whether or not legally enforceable);

• “tax advantage” has the meaning given by section 1139 of CTA 2010.

• (10) This section has effect in relation to a tax advantage that relates (or would apart from this section relate) to an accounting period beginning on or after 1 April 2017 (regardless of when the arrangements in question were made).

• (11) Where a tax advantage would (apart from this subsection) relate to an accounting period beginning before 1 April 2017 and ending on or after that date (“the straddling period”)—

• (a) so much of the straddling period as falls before 1 April 2017, and so much of that period as falls on or after that date, are treated as separate accounting periods, and

• (b) the extent (if any) to which the tax advantage relates to the second of those accounting periods is to be determined by apportioning amounts—

• (i) in accordance with section 1172 of CTA 2010 (time basis), or

• (ii) if that method would produce a result that is unjust or unreasonable, on a just and reasonable basis.

• (12) In the case of a tax advantage as a result of a deduction (or increased deduction) under—

• (a) section 463H of CTA 2009,

• (b) section 62(3) of CTA 2010,

• (c) section 303B, 303C or 303D of CTA 2010, or

• (d) section 124A or 124C of FA 2012,

subsections (10) and (11) have effect as if the references to 1 April 2017 were to 13 July 2017.

• (13) In the case of a tax advantage as a result of a deduction (or increased deduction) under section 2A(1) of TCGA 1992, subsections (10) and (11) have effect as if the references to 1 April 2017 were to 1 April 2020.

Corporate interest restriction

20

Schedule 5 makes provision about the amounts that may be brought into account for the purposes of corporation tax in respect of interest and other financing costs.

Museum and gallery exhibitions

21

Schedule 6 makes provision about relief in respect of the production of museum and gallery exhibitions.

Grassroots sport

22

• (1) CTA 2010 is amended as follows.

• (2) In section 1(2) (overview of Act)—

• (a) omit the “and” at the end of paragraph (g), and

• (b) after that paragraph insert—

(ga) relief for expenditure on grassroots sport (see Part 6A), and

.

• (3) In section 99(1) (group relief: losses and other amounts which may be surrendered), after paragraph (d) insert—

(da) amounts allowable as qualifying expenditure on grassroots sport (see Part 6A),

.

• (4) In section 105(4) (group relief: order in which amounts are treated as surrendered)—

• (a) after paragraph (a) insert—

(aa) second, expenditure within section 99(1)(da),

,

• (b) in paragraph (b), for “second” substitute “ third ”,

• (c) in paragraph (c), for “third” substitute “ fourth ”, and

• (d) in paragraph (d), for “fourth” substitute “ fifth ”.

• (5) After Part 6 insert—

(217A) (1) A payment made by a company which is qualifying expenditure on grassroots sport (and which is not refunded) is allowed as a deduction in accordance with this section from the company's total profits in calculating the corporation tax chargeable for the accounting period in which the payment is made. (2) The deduction is from the company's total profits for the accounting period after any other relief from corporation tax other than— (a) relief under Part 6, (b) group relief, and (c) group relief for carried-forward losses. (3) If the company is a qualifying sport body at the time of the payment, a deduction is allowed for the amount of the payment. See section 217C for the meaning of “qualifying sport body”. (4) If the company is not a qualifying sport body at the time of the payment, a deduction is allowed— (a) if the payment is to a qualifying sport body, for the amount of the payment, and (b) if the payment does not fall within paragraph (a) (a “direct payment”), in accordance with subsections (7) and (8). (5) If at any time on or after 1 April 2017 the company receives income for use for charitable purposes which are purposes for facilitating participation in amateur eligible sport, a deduction is allowed only if, and in so far as, the payment exceeds an amount which is equal to the amount of that income which— (a) the company does not have to bring into account for corporation tax purposes, and (b) has not previously been taken into account under this subsection to disallow a deduction under this Part of all or any part of a payment. See section 217B(3) for the meaning of terms used in this subsection. (6) But in any case, the amount of the deduction is limited to the amount that reduces the company's taxable total profits for the accounting period to nil. (7) If the total of all the direct payments made by the company in the accounting period is equal to or less than the maximum deduction for direct payments, a deduction is allowed under subsection (4)(b) in respect of that total. (8) If the total of all the direct payments made by the company in the accounting period is more than the maximum deduction for direct payments, a deduction is allowed under subsection (4)(b) in respect of so much of that total as does not exceed the maximum deduction for direct payments. (9) The maximum deduction for direct payments is £2,500 or, if the accounting period is shorter than 12 months, a proportionately reduced amount. (10) The Treasury may by regulations amend subsection (9) by substituting a higher amount for the amount for the time being specified there. (217B) (1) For the purposes of this Part, a payment is qualifying expenditure on grassroots sport if— (a) it is expenditure incurred for charitable purposes which are purposes for facilitating participation in amateur eligible sport, and (b) apart from this Part, no deduction from total profits, or in calculating any component of total profits, would be allowed in respect of the payment. For the meaning of charitable purposes, see sections 2, 7 and 8 of the Charities Act 2011. (2) Where expenditure is incurred for both— (a) charitable purposes which are purposes for facilitating participation in amateur eligible sport, and (b) other purposes, then, for the purposes of subsection (1), it is to be apportioned between the purposes in paragraph (a) and the purposes in paragraph (b) on a just and reasonable basis. (3) For the purposes of section 217A(5) and subsection (1)(a)— (a) paying a person to play or take part in a sport does not facilitate participation in amateur sport, but paying coaches or officials for their services may do so, and (b) “eligible sport” means a sport that for the time being is an eligible sport for the purposes of Chapter 9 of Part 13 (see section 661). (217C) (1) For the purposes of this Part, a “qualifying sport body” is— (a) a recognised sport governing body; (b) a body which is wholly owned by a recognised sport governing body. (2) A “recognised sport governing body” is a body which is included from time to time in a list, maintained by the National Sports Councils, of governing bodies of sport recognised by them. (3) The Treasury may by regulations— (a) amend this section for the purpose of altering the meaning of “qualifying sport body”; (b) designate bodies to be treated as qualifying sport bodies for the purposes of this Part. (4) Regulations under section (3)(b) may designate a body by reference to its inclusion in a class or description of bodies. (5) In this section “the National Sports Councils” means— (a) the United Kingdom Sports Council, (b) the English Sports Council, (c) the Scottish Sports Council, (d) the Sports Council for Wales, and (e) the Sports Council for Northern Ireland. (6) Regulations under subsection (3)(b) made before 1 April 2018 may include provision having effect in relation to times before the regulations are made (but not times earlier than 1 April 2017). (217D) If, but for section 217A, an amount— (a) would be deductible under Part 6, or (b) would be deductible under Part 6 but for Chapter 2A of Part 6, the amount is not deductible under this Part, and nothing in this Part affects the amount's deductibility (or non-deductibility) under Part 6.

• (6) The amendments made by this section have effect for the purpose of allowing deductions for payments made on or after 1 April 2017.

• (7) Where a company has an accounting period beginning before 1 April 2017 and ending on or after that date, the accounting period for the purposes of the new section 217A(9) is so much of the accounting period as falls on or after 1 April 2017.

Profits from the exploitation of patents: cost-sharing arrangements

23

• (1) Part 8A of CTA 2010 (profits from the exploitation of patents) is amended as follows.

• (2) After section 357BLE insert—

(357BLEA) (1) Subsection (2) applies if during the relevant period— (a) the company is a party to a cost-sharing arrangement (see section 357GC), (b) the company incurs expenditure in making payments under the arrangement that are within section 357BLC(2) by reason of section 357GCZC, and (c) persons who are not connected with the company make payments under the arrangement to the company in respect of relevant research and development undertaken or contracted out by the company. (2) So much of the expenditure referred to in paragraph (b) of subsection (1) as is equal to the amount of the payments referred to in paragraph (c) of that subsection is to be disregarded in determining the R&D fraction for the sub-stream. (3) Subsection (4) applies if during the relevant period— (a) the company is a party to a cost-sharing arrangement, (b) the company incurs expenditure in making payments under the arrangement that are within subsection (5), and (c) the company receives payments under the arrangement that are within subsection (6). (4) So much of the expenditure referred to in paragraph (b) of subsection (3) as is equal to the amount of the payments referred to in paragraph (c) of that subsection is to be disregarded in determining the R&D fraction for the sub-stream. (5) A payment is within this subsection if— (a) it is within section 357BLD(2) by reason of section 357GCZC, or (b) it is within section 357BLE(2) or (3) by reason of section 357GCZD. (6) A payment is within this subsection if— (a) it is made by persons connected with the company in respect of relevant research and development undertaken or contracted out by the company, or (b) it is made in respect of an assignment to the company of a relevant qualifying IP right or a grant or transfer to the company of an exclusive licence in respect of such a right.

• (3) For section 357GC substitute—